Buoyant despite the bath

Two years after its economy collapsed in a series of sensational financial scandals, Thailand remains an attractive investment center for electronics makers.

Thai electronics assembly operations grew fat in the 1980s and 1990s, as foreign investment soared and GDP growth reached into the double digits. But the crash of 1997 saw GDP contract by 8% in 1998 and the local currency, the baht, crumble from 25 to the U.S. dollar to 56 to the dollar in six months' time.

While most industries took a beating, electronics makers emerged relatively unscathed. The Thai electronics industry is largely made up of foreign-owned sub-assembly builders and semiconductor test and assembly operations. Components are brought in, products assembled and then re-exported for payment in U.S. dollars.

By their own account, electronics makers in Thailand are doing well. Even as the economy struggled to deal with the meltdown, Thailand continued to attract foreign electronics investment, according to the Bangkok government's Board of Investment (BOI). That's important, because electronics exports are critical for the Thai economy.

The electronics industry is Thailand's biggest foreign currency earner, according to the BOI. In 1997, for example, electronics exports amounted to $18 billion or 25.5% of the country's total exports by revenue.

The baht's fall affected U.S. hard disk drive maker Seagate Technology Inc., headquartered in Scotts Valley, CA, in two contradictory ways, says Woody Monroy, senior director of Seagate Corporate Technologies. The company runs five facilities in and around Bangkok, employing 34,000 workers. Devaluation made it more difficult to sell Seagates' products in Southeast Asia, but it also chopped business costs dramatically, according to Monroy. The net result: "We have actually come out ahead."

Lucent Technologies Inc.'s Microelectronics Group, which employs 1,500 people primarily in the manufacture of circuit assembly units, also avoided extensive damage from the economic downturn. In fact, the Thai government's continued support for electronics through a range of attractive tax privileges and incentives continues to make the country appealing to Murray Hill, NJ-based Lucent, says Khng Eumeng, a company spokesman. "We get very favorable rates on electricity and water," he notes. "This has been significant because of the huge volume of these resources we use in our business. Government has also instituted measures that help our goods clear customs faster."

Still, some companies have had to cut corners. "We have just cut back on our staff, even though things are going fairly well," says Terry Weir, executive director and CFO of Hana Microelectronics Group, a Thai-owned chip assembly and test operation. "We've seen this as a necessary step to the baht strengthening [driving increases in costs] and things getting back to normal." But this is a positive trend for the industry. During the boom years, salaries became inflated and executive perks like cars and golf club memberships were common, says Weir.

Today, with the baht stabilized at 36 to the U.S. dollar, investor confidence is running high. Bangkok officials predict that GDP will turn positive again in 1999, growing 1%. Private economists are less bullish--forecasting that 1999 GDP will shrink 0.5%. Both groups, however, agree that the economy has turned the corner.

One indication that the economy is back on track is IT equipment sales, most of which are imports. Sales of computers and other IT equipment are expected to grow 8% this year, to a value of $797.5 million, according to International Data Corp. Asia. By 2002, IDC Asia forecasts that the Thai IT market will be worth $1.34 billion.